If you’ve spent years saving for retirement, you probably have no plans to go through all your savings. But unfortunately, it can happen if you’re not careful.
For You: 4 Things You’ll Be Happy You Upgraded in Retirement
Discover More: 4 Unusual Ways To Make Extra Money That Actually Work
To make sure you spend your retirement years financially stable and comfortable, watch out for these six common mistakes that have derailed even wealthy retirees.
Taking Excessive Risk
There’s a time and a place for taking financial risks, and it isn’t during your retirement.
Wealth advisor and senior managing director at Magnus Financial Group, Sharon Hayut, has seen this play out among her clients.
“As an advisor, I often see individuals taking on excessive risk entering retirement, which leaves them vulnerable to market corrections,” she said.
There’s a term for this risk: sequence of returns risk. Your long-term average returns on your investments matter, but it also matters when you earn high returns versus losses.
A market crash early in your retirement can wipe out so much of your portfolio that it never recovers. That same market crash a decade later might leave your portfolio chugging upward long term — because it had a chance to grow before the next bear market.
Lacking an Emergency Fund
Hayut also added that emergency funds aren’t just for those who are still working.
“Another common mistake is not having an emergency fund with at least six months’ worth of expenses to cover unexpected costs, whether for healthcare or something as simple as needing a new car,” she continued. “When these [expenses] occur, they can significantly impact one’s financial stability and peace of mind.”
Without a cash emergency fund, many retirees have to sell off investments regardless of whether they take a loss during a down market. Ideally, you should avoid forced selloffs in retirement as much as possible.
Consider This: 5 Southern States Where $750,000 in Retirement Savings Lasts Longest
Paying High Taxes
Retired or not, you’ll still have to pay taxes. But with careful planning, you might be able to reduce just how much you pay.
“Underutilizing tax-advantaged accounts is a common mistake,” said Mike Falahee, the CEO and owner of Marygrove. “Roth contributions are taxed upfront but compound tax-free, and you pay no taxes on withdrawals in retirement.”
When the government takes less of your income in retirement, you don’t need as much gross income to survive. That, in turn, means you don’t need as much saved up in your nest egg.
Not Adapting to Change
When your circumstances change, your spending should also change. But change isn’t always easy.